Is the Student-Loan Debt Crisis Worse than We Thought?

A new report from the Federal Reserve Bank of New York delivers generally positive news about the economy with one glaring exception: student-loan debt. The amount of debt and delinquencies are climbing, and some experts say the official numbers don’t even capture how big the problem really is.

In the third quarter, there were fewer foreclosures, increased credit-card and auto lending (indicators of rising consumer confidence), and an overall drop in our collective debt load, led by decreasing mortgage debt.

Student loans are another story. We added $23 billion in new debt, and the 90-day delinquency rate rose to 11%, at a time when most other types of delinquencies are going down.

“Increasing delinquency rates are a very troubling sign,” says Deanne Loonin, an attorney and director of the Student Loan Borrower Assistance Project at the National Consumer Law Center. “The problem is in part due to the poor economy, but on the federal loan side, also underutilization of flexible repayment options such as income-based repayment.”

Some struggling alumni don’t know about the programs, she says, while others get stuck in a web of red tape. (The Consumer Financial Protection Bureau has borrower information and a repayment-assistance tool on its website where you can find out what kind of loan you have and what repayment options might be available.)

Mark Kantrowitz, publisher of Fastweb.com and FinAid.org, says the student-loan market has some quirks that could be contributing to the rising delinquency rate. “Lenders of credit-card debt, auto loans and mortgages have adopted tighter credit-underwriting criteria in the aftermath of the credit crisis. This has denied credit to financially distressed borrowers,” he says. Most federal student-loan programs, though, will accept borrowers regardless of their credit history.

The other big difference is that student loans can’t be discharged in bankruptcy. In other lending markets, a drop in outstanding debt can reflect lenders writing off the debt rather than borrowers paying it down.

Since student loans aren’t dischargeable in bankruptcy and are very hard to have waived on a hardship basis, borrowers can’t just walk away. Students who take out private student loans don’t even have the repayment options that federal loans offer.

This has a major impact on other parts of the economy. Kantrowitz says debt-laden grads, often barely able to cover their monthly student-loan payments, “tend to delay life-cycle events” such as buying a car or house, getting married and having kids. High unemployment also adds to the problem by keeping young workers on the sidelines even as their debts continue to accrue interest.

Earlier this year, advocacy group Young Invincibles published a report about how student-loan debt is holding back the housing recovery. “Cutting out a cohort of graduates who previously participated in this market will add another drag to an economy only just emerging from the Great Recession.”

“Excessive student debt can slow the recovery of the housing market,” CFPB student-loan ombudsman Rohit Chopra wrote in a blog post. “Student-loan borrowers are sending big payments every month to their loan servicers rather than becoming first-time homebuyers.”

In the post, Chopra labeled the student-loan market “too big to fail.” But imposing broader or better reforms is difficult because even the experts don’t have a good handle on how big the problem is in the first place.

Different agencies use different data sets, so while the Fed says the total amount of student-loan debt was $956 billion as of the end of September, the CFPB estimated back in March that the number had topped $1 trillion “several months ago.” The Pew Research Center estimates that nearly 1 in 5 households is paying off student-loan debt.

The Fed’s own number crunchers say that 11% delinquency rate only reflects only about half of the delinquencies because it doesn’t look at loans under forbearance or grace periods. “This implies that among loans in the repayment cycle, delinquency rates are roughly twice as high,” the report says.

“The Fed report underscores the urgent need for better student-loan data,” says Pauline Abernathy, vice president at the Institute for College Access & Success. “It’s a problem when even the size of the student-loan market is unknown.”

The total student loans have increased from billions
to trillions in just the past few years and that means the situations is
certainly getting worse for students but probably better for the lenders. We need to realize that these
corporations have made a huge business out of this and it would be wise to
think of other solutions such as moving to a welfare state.

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The student loan debt crisis has become worse because of the
high rate of unemployment. It is often observed that people need to take payday loans or title loans to keep up
with their student loan repayment plan. This stacks up a large amount debt
which creates bigger problems.

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Study something in which you can find employment. History, poetry and psychology are great subjects, however there are no jobs for them. Go to a junior college for 1-2 years and then a state school. Work, stay out of trouble and live with you family. Stay out of debt. Parents, do not pay for your kid to go to some fancy school. Also, start saving when they are born.

If its too late and you are already in debt up to your eyeballs, paying off student debts should be the same as your other debts - live below your means for a while... The first step should be getting rid of credit cards... Then I would try and cut out whatever expenses you have and don't need... or at least minimize expenses. I would first check out insurance costs (especially auto)... they are massive drains. Look to bring your payments down to $25/month (check 4AutoInsuranceQuote, they are cheapest - Insurance Panda also good). I would also try to minimize gas costs with the GasBuddy app. Once you finally get your spending under control, you'll realize that you can start paying off your debt FAST.

But the key first is to go to college for something that will actually be useful - and not spend too much money doing so!

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I have been researching the student loan debt crisis for over 3 years. Our Congress and President Obama answer is to keep loan rates low. I just drove in from work listening to PBS news a new freshman may pay $5000 more than someone last year because none of the proposals have an answer to keep interest rate down. I have come up with a start to this debt crisis. Trickle from the middle Up and Down Theory. in honor of Will Rogers that coined the term Trickle down theory to use humor to let our politician know how out of touch they are with the everyday man. give it the rich business and let it trickle down!

We have a $5250 Tuition Reimbursement Program in place. or a pilot program similar Small Business can't afford to pay the graduate a salary that would allow the graduate to pay their bills and pay back a student loan We give all kinds of tax incentives to big business

Use this program to match up Small Business and graduates that have spent the last 4 years if not more study their field of study

Just like the program now but this program has checks and balances there are quarterly reviews of graduate this plan is based on success

something most incentive never achieve

the bottom line the Jobs are created small business grows at a faster pace, increased tax revenue, graduate has money to spent which grows our economy

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If you like it comment and tell your friends if you hate it comment and tell me why,

I wrote both of my Senators in Louisiana Vitter and Landrieu that seldom agree on anything both response voted to keep interest rate down

looks like the same person wrote both reply's! We in the middle are losing more and more each year soon there will be no middle class

The joke will be on wealthy no one will be able to buy their cars, take out loans in the end we all lose if we don't find solutions Now!

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Student debt is stunting the growth of the economy. Student loans have increased by 275% over past decade. As the next generation graduates from college, they are plagued by insurmountable debt that places demands on their income, limiting their ability to spend their earnings in ways that stimulate the economy.

And it’s only going to get worst when these kids realize how low the pay scale is getting here in the US. I worked for a man once who started a company from scratch. He turned into a 500 million dollar a year company. He had no college education. And he told me once that he would never hire anyone who would make such a bad business decision to put themselves into so much debt for a college education.

I took his advice; I put my money into real state instead and took full advantage of letting my work pay for my schooling. I am living nearly debt free today. And I have the freedom to work doing whatever I want. It’s kind of fun challenging myself with new jobs. I am learning more than I ever did in any classroom.

We need to teach our kids whatever they wish to learn for free. Knowledge is power, but holding back from them only takes the power away from us all. There are a lot of smart poor kids out there that can do more for OUR country then any rich dumb kid can. Find those smart kids and teach them all that you know. In doing this you ensure a better life for your kids.

When the upcoming citizenry cannot be expected to contribute productively with successful working lives (due to various madcap adventures leading to current economic downturn globally, which isn't going away anytime soon...) - then the thing to do is slap a "dream tax" on them upfront. Dare to dream (as having been instructed since preschool) that higher education leads to middle class, motherhood, apple pie and blueberry turnover - and all manner of other things requiring gainful employment of the living wage sort.

Processed like cheese, these "value-added" youngsters, worth next to nothing beforehand, provide endless profit opportunity for the system, of educators, bankers, financialistas, collectors, hooligans, sharks, psychopaths and yoga instructors. This is free enterprise of the downwardly spiralling sort. A most deadly charm.

OK so not only do people want to run up credit cards, have fun, and
play! Now people want to get a degree, get student loans for this
degree, AND THEN DISCHARGE EVERYTHING!! Why don't I just work and pay
my taxes and theirs and send them a check to live on every week too!
Do I sound mean, nasty, uncaring? I was in the same boat in 2009.
$50,000 credit card debt. $80,000 mortgage. $8,000 left on a student
loan. And I had just had 2 surgeries for thyroid cancer. We sold the
house at a loss. Moved back to Florida where family was. And since then
we have paid down $30,000 in the credit debt and I have about $4,000 on
the student loan. It did take about 4-5 months of not paying our cards
for the credit card companies to deal with us. They closed the accounts
and are now interest free, so all payments go directly to the principal.
Our credit ratings took a dump but we can't really afford to buy
anything right now anyway.
Back to the bankruptcy thing...if you take out a loan for an education
and you get that education, you will ALWAYS have that education. If you
charge off credit card debt on a bankruptcy, the card companies take you
to court to get you to sell anything they feel that is of value to get
their money back, except your main home. You can not do that with an
education. Once something is learned it can't be unlearned. What do we
do take the degree from the person? Tell them they can not work in that
field for the rest of their life? Wouldn't that be destroying their
life, too?
And the only reason the student loan debt "crisis" is getting so much
publicity is because it is so much bigger than the credit card debt
right now but that is only because all the credit card debt was charged
off when everyone filed bankruptcy. They charged off the credit card
debt but couldn't do the same with the student loans. Are they the same
people now complaining about the student loan debt "crisis"??

Let's talk about money so everyone is has the same understanding. There is No cost to create money! If you create to much and distribute wrong, we have excess inflation and asset bubbles. (which we have in college funding to day) If you create to little in circulation we have recessions/depressions. (like our current overall condition today) We do not have to create and distribute money through debt!

There is no reason the banks have to charge high interest rates if the real cost of a dollar is basically zero. Therefore, all student loans interest should be 1% or lower, just to pay for servicing. The alternative is the gov't just picking up the cost with some price controls on the tuition.

If we pay off the student loans it reduces the amount of money in circulation and if we forgive the loans and start the system over, the money remains in circulation which is better for the economy. Interesting isn't it!

I am not going to get into a any debate on education. But, you need to understand money and the monetary reform movement which is the answer. You can go to www.monetary.org and www.cpe.us.com under the Monetary Reform Section on the right.